Report on Wales’ economy shows climate for small firms in Wales “remains difficult”

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Economic Intelligence Wales has published its annual report for the 2021/22 financial year, with a challenging immediate future predicted for businesses operating in Wales.

Economic Intelligence Wales is a dedicated research collaboration between the Development Bank of Wales, Cardiff Business School and the Office for National Statistics which provides insight and analysis on the Welsh economy.

The report – the fourth annual report published by Economic Intelligence Wales – analyses the impact of a difficult year for the Welsh economy as small and medium-sized enterprises (SMEs) dealt with inflation, stretched supply chains, labour shortages and increased energy costs.

Produced by Cardiff Business School, the report provides a detailed outlook for the wider economy and prospects for Welsh businesses as forecasters predict a recession for the UK.

Global growth forecasts have been revised downwards for 2022 and 2023, following a drop in the UK’s GDP of 0.3% in April, and with business investment nine per cent below its pre-pandemic level.

Inflation is an even larger concern for small businesses in Wales when compared to their counterparts across the rest of the UK, and June 2022 saw almost 56% of Welsh SMEs fall into caution and high-risk categories compared with 53.7% in May 2021.

While Covid-19 recovery and the impact of the war in Ukraine continue to put pressure on businesses, some sectors saw improved performance and signs of optimism.

Welsh business confidence improved in early 2022, and Welsh food and drink exports grew by just over 16%. Equity investment has also seen large growth in Wales, with the total value of equity investment increasing by 44% in 2021.

The National Institute of Economic and Social Research (NIESR) noted Welsh GVA exceeded pre-pandemic levels and is expected to grow faster than the UK average by 2023 Q4.

The Development Bank of Wales invested £109m in 2021/22, creating more than 2,600 jobs with an estimated net impact of more than £32,000 added to Welsh GVA for each job protected or created.

Max Munday, Director of the Welsh Economy Research Unit at Cardiff University, said: “The annual report shows that the operating climate surrounding small firms in Wales remains difficult; businesses are being faced by increasing costs, with some facing challenges of attracting the skills they need in tighter local labour markets.

“Evidence showing a growing number of UK businesses defaulting on loans is of particular concern – as is falling business confidence in the second quarter of this year.”

Giles Thorley, Chief Executive of the Development Bank of Wales, said: “While the annual report produced by Economic Intelligence Wales makes for sobering reading, I am pleased to note the supportive role played by the Development Bank in helping and protecting businesses in Wales, with £109m invested in 2021/22.

“Part of our role is to provide Welsh businesses with stability in uncertain times, and the report will inform how we carry on our work in backing nearly 3,000 customers across Wales.

“While the report also notes a growing number of businesses facing cashflow challenges, the last financial year saw a strong appetite for the wide range of investment support we offer, and we have the capital required to back existing and new customers.

“I would encourage businesses interested in the help we offer to get in touch.”